As 2021 begins, the Swiss watch business is navigating a brand new and unfamiliar retail panorama: For the first time, China is the world’s largest market for its merchandise.
China’s virtually 1.4 billion residents have been the largest patrons of luxurious watches for a number of years. But most of their purchases had been exterior the nation, to make the most of decrease gross sales taxes in locations like London, Dubai and Hong Kong.
Then got here the pandemic, the suspension of worldwide journey and a ensuing surge in Chinese luxurious shoppers’ buying domestically.
“We calculate that around 70 percent of Chinese luxury spend used to happen in the overseas market,” mentioned Véronique Yang, a managing director and associate at Boston Consulting Group in Shanghai. “In 2020, that figure fell to around 30 percent. Chinese people have started to purchase within the domestic market.”
And the consequence? According to the Federation of the Swiss Watch Industry, the most up-to-date figures present exports of Swiss watches to mainland China totaled 2.1 billion Swiss francs ($2.39 billion) from January to November 2020, a rise of 17.1 p.c from the identical interval in 2019. (The federation tallies exports to Hong Kong and to mainland China individually.)
Every different market in the business’s prime 20 — together with Hong Kong and the United States, its longtime leaders — recorded a double-digit decline throughout the identical interval.
The change grew to become a shiny spot in a chaotic yr.
“China is on fire,” mentioned Patrick Pruniaux, chief government of the Kering Group watch firms Ulysse Nardin and Girard-Perregaux. “From midsummer onwards, we’ve been positive year over year in China. We’re seeing double-digit growth.”
Julien Tornare, chief government of the LVMH watch firm Zenith, mentioned China had been vital to the enterprise’s revenues. “China became No. 1 for Zenith in 2020,” he mentioned, offering about 30 p.c of the model’s gross sales and serving to to cowl enterprise misplaced throughout the pandemic.
The sudden shift in Chinese spending away from conventional vacationer locations left manufacturers scrambling to adapt gross sales and advertising and marketing methods. Some opened bodily shops or pop-ups in China, however the focus for many was the nation’s vibrant digital market.
Last summer season, quite a few luxurious watch manufacturers, together with the Richemont firms Montblanc, IWC and Piaget, opened shops on Tmall Luxury Pavilion, the Chinese on-line market operated by the Alibaba Group, which now lists merchandise from greater than 200 luxurious manufacturers. The attraction actually was the platform’s attain: While it doesn’t disclose specifics of particular person website use, Alibaba has mentioned its Chinese retail marketplaces have 757 million energetic annual customers.
Other manufacturers, akin to Omega, turned to the Chinese app WeChat, which gives fee features and direct client gross sales for its 1.2 billion month-to-month energetic customers. “Our use of WeChat has been part of a global strategy to increase our social media presence and e-commerce platforms in key markets, in order to reach a greater number of clients,” Raynald Aeschlimann, president and chief government of Omega, wrote in an e-mail.
In May, WeChat’s proprietor, the tech big Tencent, revealed a report on the app’s utilization throughout the nation’s preliminary Covid-19 outbreak. The report, produced with Tsinghua University’s Tsinghua China Data Center and the Tencent Social Research Institute, said there have been multiple billion every day business transactions on WeChat Pay between March and May 2020. And, whereas it doesn’t get away figures for watches, the app has said its WeChat Pay business transactions in 2019 totaled greater than 800 billion renminbi (about $126 billion).
E-commerce in China has not been the silver bullet for watch firms, although. “It has been covering some of the physical purchases” misplaced throughout the pandemic, mentioned Laurent Perves, chief advertising and marketing officer at Vacheron Constantin, which opened a retailer on Tmall Luxury Pavilion final summer season. It used the retailer in August to introduce the 100-piece Malte Manual-Winding China Limited Edition watch, and mentioned the timepiece, which retails for 166,000 renminbi, had bought out.
“We’ve also been selling very high value pieces online using private video conferencing sessions,” Mr. Perves mentioned, together with watches worth greater than $100,000.
Luxury watch manufacturers even have responded to the Chinese authorities’ resolution final summer season to chill out its duty-free coverage on Hainan, the southern island province being promoted as a home vacation spot mixing the tropical atmosphere of Bali or Singapore with the buying attract of Paris or New York. They additionally lifted the duty-free restrict of 8,000 renminbi on single purchases. And every customer now’s allowed to purchase a complete of 100,000 renminbi in tax-free items there annually, up from 30,000 renminbi — an allowance that may allow the buy of a midrange luxurious watch.
The business responded shortly. The Swiss retailer Kirchhofer moved its Chinese headquarters to Hainan and, in September, 11 manufacturers gathered there for a monthlong public occasion organized by the Richemont-powered Watches & Wonders truthful.
While particular gross sales figures for watches usually are not out there, the Hainan Provincial Bureau of International Economic Development has said that from July 1 to Oct. 31, duty-free gross sales revenues at the island’s 4 duty-free retailers hit 12 billion renminbi, a 214 p.c enhance yr over yr.
However, some watch executives mentioned they weren’t anticipating Hainan to be a long-term resolution.
“Hainan was a bit of a gold rush that helped a lot of brands realize good performance in 2020,” Mr. Tornare of Zenith mentioned. “But I don’t believe it’s going to be a long-term thing. The minute Chinese will be available to travel abroad, they will.”
For the manufacturers reliant on Chinese patrons however with no presence or publicity in China, the pandemic created a monetary disaster. Edouard Meylan, chief government of the impartial Swiss watch firm H. Moser & Cie, mentioned that earlier than the pandemic lower than 1 p.c of the firm’s international gross sales occurred in China, however that half of its gross sales in Switzerland alone have been to Chinese. Now, “our Chinese tourist business has disappeared,” he mentioned. “Today, it’s zero.”
The firm hurried to open pop-ups, together with one in Beijing, and Mr. Meylan mentioned that by the finish of this yr, he hoped to have 4 monobrand boutiques in the nation.
“We will also triple our communication budget in China, compared to 2020,” he mentioned. “China is our main focus market for the next three years.”
According to some specialists, growing a market in China affords greater than only a fast repair for flagging international gross sales.
“China is a petri dish, where you can trial and experiment,” mentioned Iris Chan, a associate at the Digital Luxury Group, a advertising and marketing company primarily based in Geneva. “Brands are trialing Tmall, but they would never be on Amazon. China is so much more digitally ahead. It’s like a view into the future of what other markets are going to look like.”
And, based on a recent report by Bain & Co., the luxurious market in mainland China was anticipated to characterize virtually 346 billion renminbi by the finish of 2020. The international luxurious market shrank by 23 p.c final yr, it mentioned, but mainland China’s market share almost doubled, rising to twenty p.c in 2020 from about 11 p.c in 2019.
Not everybody, nevertheless, was satisfied that progress in China’s home luxurious market would grow to be a everlasting pattern.
“The Chinese are spending less per capita versus 2019 as many could enjoy European prices during their holidays,” mentioned Luca Solca, a senior research analyst at Bernstein, a wealth administration agency. “Once the Chinese are able to travel again, this will bring a tailwind, as consumers will find once again cheaper prices as they go to Europe.”
Mr. Pruniaux of Ulysse Nardin and Girard-Perregaux struck an analogous notice of warning: “One of the traps could be to become far too China-centric. If you want to be successful today, you can be successful in key cities and countries, but you cannot be successful only in one country. We shouldn’t be relocating too much to China. We need to keep a fair balance.”
Mr. Tornare agreed. “China will be the engine for growth, but it’s healthy not to put all your eggs in one basket.”
As the world offers with delays in vaccination, new lockdowns and ever-changing native restrictions, the prospects for 2021 stay unsure.
“The big discussion we’re having now is about how we go after China,” mentioned Mr. Meylan of H. Moser. “What works today might not work in 12 or 36 months.”